## The remaining useful life of buildings

- Introduction
- 1 What is the remaining useful life of real estate?
- 1.1 Legal basis

- 2 The Importance of the Remaining Useful Life
- 2.1 For capital investors and investors
- 2.2 Technical vs. economic useful life
- 2.3 Examples of historical buildings
- 2.4 Consequences of the expiry of the remaining useful life

- 3 The Role of the Remaining Useful Life in the Determination of Value
- 3.1 Income capitalization approach

- 4. saving taxes with the remaining useful life
- 4.1 Tax depreciation
- 4.2 Expert opinion on remaining useful life

- 5. difference between total useful life and remaining useful life
- 5.1 What is the total useful life?

- 6 How is the remaining useful life calculated?
- 6.1 Basis of calculation
- 6.2 Example calculation

- 7 Factors influencing the remaining useful life
- 7.1 Refurbishment
- 7.2 Modernization
- 7.3 Renovation
- 7.4 Maintenance vs. repair

- 8 Uncertainty factors in remaining useful life
- 8.1 External events
- 8.2 Development of building and housing culture

- Conclusion: The importance of remaining useful life for real estate

## Introduction

The remaining useful life of buildings is a crucial factor in real estate valuation. In this article, we will explain the importance of remaining useful life, its role in real estate valuation and how it can affect tax depreciation.

### 1. what is the remaining useful life of real estate?

Buildings, unlike the land on which they stand, have a finite life. The remaining useful life is a term from valuation law and indicates how many years a building can be used economically. This may include rental or operational use.

The legal definition of the remaining useful life is: "The remaining useful life refers to the number of years in which a building asset can probably still be used economically under proper management." (Section 4 (3) ImmoWertV)

### 1.1 Legal basis

The remaining useful life is not only of great importance for capital investors and investors interested in income-producing real estate. It is also an important aspect in the tax depreciation of real estate. Depending on the year of construction of the building, there is a standard useful life over which you can depreciate your property for tax purposes. If the actual remaining useful life is shorter, you can prove this with an expert opinion and reduce your depreciation.

## 2 The importance of the remaining useful life

The remaining useful life is of crucial importance for capital investors and investors who invest in real estate. It helps in estimating the future return on a property. It is important to note that the remaining useful life is not just the difference between the total useful life and the age of the building. It also takes into account modernizations and refurbishments that can extend the economic life.

### 2.1 For capital investors and investors

The remaining useful life is of crucial importance for capital investors and investors who invest in real estate. It helps in estimating the future return on a property. It is important to note that the remaining useful life is not just the difference between the total useful life and the age of the building. It also takes into account modernizations and renovations that can extend the economic useful life.

### 2.2 Technical vs. economic life

Buildings often have a technical life that extends well beyond the remaining economic life. An example of this is historic buildings such as castles and palaces. Although they may still be standing, they are often no longer economically viable to operate. This is due to changing requirements and lack of demand.

### 2.3 Examples of historic buildings

Historic buildings such as castles and palaces are often prime examples of buildings whose remaining economic life has expired. This can be due to various reasons, such as low demand, high conversion costs, and outdated technology.

### 2.4 Consequences when the remaining useful life expires

When the remaining useful economic life of a building has expired, this means that the achievable income from renting no longer covers the costs. In this case, it would make more sense to demolish the building and construct a new building or invest the capital elsewhere.

## 3 The Role of the Remaining Useful Life in the Determination of Value

The remaining useful life plays an important role in the calculation of theoretically possible returns in the capitalized earnings value method. This procedure is used to determine the value of income-producing real estate, including in foreclosures or expropriations.

### 3.1 Income capitalization approach

The capitalized earnings method is a method for determining the value of real estate, especially income-producing real estate. The expected earning power of the property is included in the valuation, and the remaining useful life is an important factor in this calculation.

## 4. saving taxes with the remaining useful life

Tax depreciation of real estate often depends on the remaining useful life. The shorter the remaining useful life, the higher the depreciation amounts can be, resulting in tax benefits. However, there are certain regulations and expert opinions that must be observed.

### 4.1 Tax depreciation

The legislator has set flat-rate useful lives over which you can depreciate your property for tax purposes. If the actual remaining useful life is shorter, you can prove this by means of an expert opinion and increase your depreciation. This will result in significant tax benefits.

### 4.2 Expert opinion on remaining useful life

It is advisable to obtain an expert opinion on the remaining useful life of your property in order to benefit from the tax advantages. By proving a shorter remaining useful life, you can increase your annual depreciation amounts and thus pay less tax.

## 5 Difference between total useful life and remaining useful life

The total useful life indicates the theoretical economic life of a property. It is the period of time from the completion of a building to its economic end.

### 5.1 What is the total useful life?

The total useful life is the theoretical economic life of a property. It is the time span from the completion of a building to its economic end.

## How is the remaining useful life calculated?

The calculation of the remaining useful life is based on the difference between the total useful life and the age of the property on the relevant date. Individual circumstances such as modernizations and refurbishments are taken into account.

### 6.1 Basis of calculation

The calculation of the remaining useful life is based on the difference between the total useful life and the age of the property on the relevant reporting date. Individual circumstances such as modernizations and refurbishments are taken into account.

### 6.2 Sample calculation

To calculate the remaining useful life, subtract the age of the property from the value of the total useful life. This value may be longer or shorter, depending on individual factors and measures carried out.

## 7 Factors affecting the remaining useful life

The remaining useful life of a building can be both extended and shortened. Various factors can contribute to this, including refurbishment, modernization and renovation. These measures can increase the economic life of a property by increasing its residential value and reducing repair costs.

### 7.1 Refurbishment

Rehabilitation measures can help extend the remaining useful life of a building. By renewing building components and installations, the property can once again be used economically.

### 7.2 Modernization

Modernization measures serve to improve the living quality and energy efficiency of a property. They can extend the remaining useful life by making the building more attractive.

### 7.3 Renovation

Renovations refer to minor repairs and cosmetic improvements. Although they do not extend the life of a property as much as renovations or upgrades, they still help maintain value.

### 7.4 Maintenance vs. repair

Regular maintenance of a property is critical to preserving its remaining useful life. Repair measures become necessary when damage has already occurred in order to continue the economic use.

## 8 Uncertainty Factors in the Remaining Useful Life

The remaining useful life of a property can be affected by various uncertain factors. These include external events and developments in building and housing culture.

### 8.1 External events

External events such as natural disasters can significantly affect the remaining useful life, especially if they damage the building fabric. Remedial measures may be required to preserve the remaining useful life.

### 8.2 Development of building and housing culture

The evolution of building and housing culture can also create uncertainties in remaining useful life. Societal changes and trends may cause certain buildings to become obsolete more quickly.

## Conclusion: The importance of the remaining useful life for real estate

Remaining useful life is a critical factor in the valuation of real estate and can have a significant impact on its value. It plays an important role in calculating returns and offers the opportunity to save taxes if it is shorter than the useful life established by tax law. However, it is important to note that the calculation of remaining useful life is complex and depends on many factors, including individual circumstances and external events. Therefore, it cannot always be accurately predicted.